Over the past 25 years, the S&P 500® has returned a cumulative 940% (10% annually). However, the market’s climb was not a steady one (see Exhibit 1). Since 1991, equities have gone through two major bear markets: the bursting of the technology bubble in 2000-2002 and the financial crisis of 2007-2008. The S&P 500 declined 38% in calendar years 2000-2002 and 37% in 2008 alone.
These two events seem superficially similar, starting with the magnitude of the decline. Both were major distresses following sustained gains in the S&P 500, and in both cases volatility rose (see Exhibit 2).1 It’s not hard to imagine a young analyst, 50 years from now, looking at both episodes and concluding that they were essentially the same. But he would be wrong.
